Monday, November 17, 2008

Consumer Concern with Price Programs

Delaware Online has this article, about buyer's remorse in volatile times.
[Monica Harvey] agreed to a price-cap contract with Burns & McBride this summer after reading stories that projected prices would only go up.

The program, common among oil dealers, has customers pay a fee equal to 50 cents a gallon for however much they want to reserve at a price cap of $5.60 a gallon. The price couldn't go up, and if it came down they would pay the market price -- now $2.89 a gallon.

Harvey now gets the $2.89 price, but she's out the $150 she put up to "protect" 300 gallons.

"They made it seem like, seriously, do or die, you'll be out in the cold," she said. "Let's have some common decency here and return this money."

That's not possible for the 4,000 or 5,000 customers who took advantage of the offer, said Tom McBride, the president of the company that serves Delaware, Maryland and New Jersey.

McBride said his company used the upfront fee cash to buy options and hedges to keep prices reasonable in the event they exceed the cap. His company doesn't make any more money on the deal, no matter how high or low prices go, he said.

The frustrating thing about this article is the quotation marks around word "protect." Ms. Harvey spent 50 cents a gallon to receive a benefit (through reduced oil costs) of OVER $2.00/gallon! That she has the lack of understanding is understandable - our customers are uneducated when it comes to the "insurance premium" type nature of program enrollment fees.

However, I think it is incumbent upon a responsible journalist to report that Ms. Harvey received a four-fold return on her invested enrollment fee. Not a bad deal in these markets.

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